This is one of the reasons why I don't like this release date. Releasing this just a week before Smash 4 doesn't sound they they are respecting the new game, and that is the sort of thing I think could piss off Nintendo and lead them to putting their foot down.
In general though, as long as they don't feel threatened by it and the PMDT is not doing it for profit, they will probably let it go. Issuing a C&D or something (which would also cut it from streaming sites and stuff) would cause a pretty massive uproar in the Smash community since PM is the #2 game right now after Melee.
Fortunately, I don't think they can just wait until after Smash 4 releases and drop a C&D if Smash sales fall below expectations. That makes Nintendo look bad if they claim a fanmade mod of Brawl managed to significantly detract from Smash 4's sales.